Google Damaged its Reputation Due to Tax Evasion

In a hard-hitting 64-page report, a U.K. parliamentary committee said Google Inc (NASDAQ:GOOG)’s tax avoidance had damaged its reputation and that of Her Majesty’s Revenue and Customs.

The U.K. parliamentary committee is comprised of lawmakers from the U.K.’s main political parties.

The MPs have accused Google Inc (NASDAQ:GOOG) of failing to pay its ‘fair share’ of taxes and reduce its liabilities in the U.K. The Public Accounts Committee (PAC) has asked HMRC to investigate why the internet giant dodged taxes when it generated revenues of 18 billion dollars between 2006 and 2011, but paid only 16 million dollars in corporation taxes.

The internet giant has not disclosed the profitability of the sales but pointed out that these are generated from its intellectual capital, which was not developed or owned in the U.K.

Plug the Tax Loopholes

The PAC also said Google Inc (NASDAQ:GOOG) put the substantial profit generated from the U.K. out of reach of its tax system. Google Inc (NASDAQ:GOOG) defended its tax position by claiming that its sales of advertising space to U.K. clients take place in Ireland. The committee, however, found Google Inc (NASDAQ:GOOG)’s defense ‘deeply unconvincing’.

Google Inc (NASDAQ:GOOG) insists that it did not evade taxes and complied with all tax rules in the U.K. It welcomed any moves to make the tax system simpler and more transparent.

The U.K. parliamentary committee observed that tax avoidance by multinational firms was illustrative of wider problems. The committee said it was particularly concerned about the out-of-date tax frameworks covering international internet-based commerce which rely on a fully automated process. The committee also suggested HM Treasury take a leading role in driving international action to update tax laws and combat tax avoidance.

The committee urged the government to strengthen HMRC and simplify the tax code so the tax loopholes are plugged. The committee also considers accounting firms responsible for an ‘elaborate corporate construct’ to find ways of evading ‘fair taxes’.

The committee concluded that it was “extraordinary” that British authorities had failed to challenge the tax structure of Google Inc (NASDAQ:GOOG), and other multinationals operating in Britain. The committee also noted that HMRC needs to be much more effective in challenging the artificial corporate structures created by multinationals with no other purpose than to avoid tax. It also suggested that HMRS should now fully investigate Google in the light of evidence provided by whistleblowers.

The parliamentary committee’s report was published ahead of next week’s G8 summit in Northern Ireland, where host Britain will seek to tackle tax avoidance, which is legal. However, tax evasion is not legal.